Given the following information, what is the variance of a portfolio that is invested 25 percent in both stocks A and C, and 50 percent in stock B?
State of Economy | Probability of State of Economy | Rate of Return if State Occurs | |||
Stock A | Stock B | Stock C | |||
Boom | 0.45 | 0.19 | 0.09 | 0.06 | |
Natural | 0.55 | 0.11 | 0.05 | 0.26 |
Return in boom =25%*0.19+50%*0.09+25%*0.06 =10.75%
Return in Natural =25%*0.11+50%*0.05+25%*0.26 =11.75%
Expected Return of Portfolio =0.45*10.75%+0.55*11.75% =11.30%
Variance of Portfolio
=0.45*(10.75%-11.30%)^2+0.55*(11.75%-11.30%)^2 =0.002475% or
0.0025%
Given the following information, what is the variance of a portfolio that is invested 25 percent...
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